1. New Product Development Min Ding Pennsylvania State University

2. Topics  What tradeoffs/factors determine the optimal NPD strategy  Contrast development strategies between digital and non-digital products  Impact of internet on NPD for non-digital products

3. Key Strategies in NPD 1. Try many different approaches at the same time 2. Launch a product fast with imperfect profile 3. Do things in parallel 4. Use customer feedbacks (understand customer needs) before and during the NPD process (instead of waiting until test market)

4. 1. Try many different approaches at the same time  Tradeoff between

5. NPD Pipelines Structures Funnel: Business Opportunity $ Tunnel I: Business Opportunity $ Tunnel II: Business Opportunity $

6. Three Critical Drivers  cost  probability of survival  magnitude of the business opportunity (dependency on time to market and quality of the product)

7. An example: Decision Tree for Three Stage NPD Source: Ding and Eliashberg, 2000 Stage 3 Stage 2 Stage 1 Stage 0 Expected (Phase I) (Phase II) (Phase III) Launch Profit consider all available leads (L) L Ln3*Ln3* L<n 3 * n 3 =L n 3 =n 3 * s3s3 s3s3 s2n1*s2n1* s3n2*s3n2* s 3 <n 2 * n 2 =n 2 * n 2 =s 3 s2s2 s2s2 s2s2 s2s2 s3n2*s3n2* s2n1*s2n1* s2n1*s2n1* s2n1*s2n1* s 2 <n 1 * n 1 =n 1 * n 1 =s 2 s1s1 s1s1 s1s1 s1s1 s1s1 s1s1 s1s1 s1s1 0 0 0 0 0 0 0 0 s11s11 s11s11 s11s11 s11s11 s11s11 s11s11 s11s11 s11s11 s 1 =0 E  0 (s 1  1)

8. 2. Launch a product fast with imperfect profile  Tradeoff between

9. 3. Do things in parallel  Tradeoff between

10. 4. Use customer feedbacks before and during the NPD process  Tradeoff between

11. What’s the big deal about internet NPD?  There should be no such notion of old vs. new ways of NPD. The NPD decision rules (tradeoffs) are still the same.  The NPD strategies are different simply because the parameter values of the three prior discussed tradeoffs are significantly different.

12. Contrast development strategies between digital and non-digital products Try different approaches at the same time costBenefit of faster to market Common strategy Digital products Low (marginal cost of one additional approach) Highly depended on time to market (short PLC, standard setting) Non digital products High development cost medium

13. Contrast development strategies between digital and non-digital products Launch a product with imperfect profile Benefit of faster time to market Benefit of better product Common strategy Digital products hugemedium (products could be easily improved after launch) Non digital products mediumhuge

14. Contrast development strategies between digital and non-digital products Do Things in Parallel Reconciliation neededTime savedCommon strategy Digital products Almost 0A lot Non digital products Maybe highLimited

15. Contrast development strategies between digital and non-digital products Use Customer Feedbacks Added costHigher probability of market success Common strategy Digital products Low test market cost Low cost of customer feedback during development Yes Non digital products High test market cost High cost of customer feedback during development yes

16. Impact of internet on non-digital product development Let’s go back and revisit the four decision rules

17. Information Acceleration Systems Source:Urban, Weinberg, and Hauser, 1996.  Place consumers in a virtual buying environment  IA systems simulate the information that’s available to consumers when they make a purchase decision  Virtual showroom visits  Advertising (TV, magazines, newspapers)  Review articles and consumer-oriented reports  Word of mouth  Are these virtual environments realistic enough to accurately measure behavior?  Early evidence is positive, but mixed Can we use similar approach to simulate new product for customers?

18. Summary  Key NPD strategies and the tradeoffs involved in each;  Be able to differentiate NPD strategies between digital and non-digital NPD; Sample final question: Propose the best product development strategies for each of the following two cases:  an e-commerce site for our class project  A best selling book for undergraduates